Prospect Capital’s Insiders Have a Mixed Trading Record

Prospect Capital’s (PSEC) insiders have a good track record of making large purchases near major bottoms in the stock.

But then, they also have a good track record of making large purchases near major tops too…

CFO Brian Oswald made news this week by making a large, 50,000 share purchase on the open market valued at about $336,500. He’s already up modestly on the position, and I expect he’ll make good money having bought where he did.

But Oswald and directors Eugene Stark and William Gremp were also heavy buyers in March and May of this year, and they are well under water on those positions.

In late 2015 and early 2016, virtually the entire executive team — and particularly CEO  John Barry — went on a buying spree, snapping up several million shares at prices between $6 and $7 per share. That proved to be an excellent time to buy, as the shares rose by over 30% and paid dividends along the way.

But, they were also buying aggressively in late 2014, and those purchases are still well under water.

I should be clear that I consider Prospect Capital to be very cheap at today’s prices, trading at just 77% of book value, and I expect anyone buying at today’s prices to do well. I recent tiptoed back into the stock after selling in anticipation of the dividend cut.

But I also believe this is a stock better traded than held for long-term investment. Buy it when it trades below 80% of book value, but look to take profits when it reaches 90%-95% of book value. Or at the very least, keep your stops tight when it gets into that range.

But while I like the stock at today’s prices, I would recommend taking the news of Prospect Capital insider buying with a healthy grain of salt. It shows skin in the game by management, and I like that. But their track records as market timers hasn’t exactly been the best.

Disclosure: Long PSEC